Taxation in China: Overview and requirements for businesses.

China operates a multi-layered tax system that covers corporate income, value-added tax, individual income tax and a range of transaction-based levies. The rules differ by industry, company type and location, and several key policies have changed in recent years. This guide sets out the main tax categories, current rates and filing obligations that apply to businesses operating in China.

Corporate income tax

The standard corporate income tax (CIT) rate in China is 25%. However, to encourage growth, preferential CIT rates are available for specific industries. For example, the high-tech and pollution prevention industries enjoy a reduced CIT rate of 15%, while key software enterprises that meet additional qualifying criteria, including domestic sales thresholds and certified product requirements, may access a reduced rate of 10%.

CIT is declared quarterly, with the final amount determined during the annual CIT filings and tax reconciliation based on year-end audits.

Small and low-profit enterprises (SLPEs) with annual taxable income below CNY 3 million qualify for a preferential CIT rate. The effective CIT rate for SLPEs is 5%. This rate was confirmed through 31 December 2027 by the State Council, though it remains a time-limited policy rather than a permanent feature of the CIT Law.

For SLPEs to qualify, they must meet the following conditions:

• Annual taxable income not exceeding CNY 3 million
• Number of employees not exceeding 300
• Total asset value not exceeding CNY 50 million

Corporate income tax (CIT) is prepaid monthly or quarterly based on the company’s accounting records. Companies file CIT tax returns and make prepayments within 15 days after the end of each month or quarter.

The deadline for filing annual CIT is 31 May of the following fiscal year. Additionally, enterprises with cross-border transactions involving related parties prepare an annual affiliated transaction report addressing transfer pricing issues, in addition to the annual CIT filing. Some regions in China may also require foreign-invested enterprises to prepare a separate CIT audit report conducted by a China-certified tax agent.

Tax incentives and preferential regimes in China

China operates several preferential tax regimes that reduce the standard 25% CIT rate for qualifying companies. Eligibility criteria are set at the national level, but local tax bureaus retain discretion in their assessment, and outcomes can vary across cities and provinces. The management principle adopted by Chinese tax authorities for enterprises enjoying tax preferences is ‘self-identification, claiming upon filing, and retaining relevant documentation for future inspection.’

The table below summarises the main incentive categories.

Although the preferential regimes above are set in national law, the practical application differs across cities. Shenzhen, Shanghai, Beijing Zhongguancun and Hainan have each developed supplementary policies, and the tax bureau’s assessment of whether a company meets the criteria, particularly for HNTE, can reach different conclusions in different locations. Companies operating across multiple jurisdictions in China are advised to confirm local conditions before relying on any preferential rate.

Several of the concessions above, particularly the SLPE reduced rate and the R&D super-deduction percentages, are renewed by the State Council on a periodic basis. They are not embedded in the primary tax law as permanent features, which means rates or thresholds could change at the next renewal cycle. Any tax planning that depends on these rates should account for that risk.

Value added tax (VAT)

Entities in China are categorised into general and small-scale taxpayers, which mainly influences how they should treat VAT. Registration as a general taxpayer offers the tiered 6, 9 and 13 % VAT rate and the ability to offset the input VAT liability. Generally, the VAT rate for traded goods is 13%, while most services are taxed at 6%. Additionally, a sales surtax is levied on the net VAT payable, with the applicable rate varying by location and reaching up to approximately 12% in urban districts.

Exports of most goods are zero-rated, though companies may need to apply for refunds from the local tax authority to recover input VAT.

For small-scale taxpayers, defined as entities with annual VAT-taxable sales below CNY 5m, VAT is calculated at a flat rate of 3% with no input VAT deduction. Details of the small-scale taxpayer regime are set out in the section below.

If a small-scale taxpayer’s monthly sales fall below CNY 100,000 or quarterly sales fall under CNY 300,000, VAT is exempt.

The deadline for VAT payment varies, ranging from ten days to one quarter, depending on the taxpayer’s payable tax amount. Authorised tax authorities determine the specific deadline. Taxpayers who do not frequently engage in taxable transactions can pay tax for each transaction individually.

If a taxpayer uses a month or a quarter as a tax calculation period, they file their tax return within 15 days from the end of the period. If they use a 10-day or 15-day tax calculation period, they file their tax return within 15 days from the first day of the following month.

Small-scale taxpayers under the new VAT Law

China’s new VAT Law came into effect on 1 January 2026, replacing the Interim Regulations on Value-Added Tax that had governed the system since 1993 and the supplementary circulars issued by the Ministry of Finance and State Taxation Administration over the following three decades. The new law consolidates the framework into a single statute and introduces several changes that affect small-scale taxpayers in particular.

Under the new VAT Law, a small-scale taxpayer is defined as a VAT-registered entity whose annual VAT-taxable sales fall below CNY 5m. This threshold was raised progressively in prior years and is now codified in the statute rather than set by administrative circular, giving it greater stability while still remaining subject to adjustment by State Council regulation.

Key changes under the new VAT Law for small-scale taxpayers:

• The consolidated annual threshold of CNY 5m is now statutory, replacing the previous practice of setting the figure by administrative circular.
• Small-scale taxpayers apply a levy rate of 3% on taxable sales and cannot claim input VAT credits, meaning all VAT on purchases is treated as a cost to the business.
• Quarterly filing is the default, with an option to file monthly; operators whose monthly sales fall below CNY 100,000, or CNY 300,000 per quarter, are exempt from charging or remitting VAT on those sales.
• Voluntary upgrade to general taxpayer status remains available, though once a business converts it cannot revert.
• The rollout of the fully digital e-fapiao system has been completed, and taxpayers are now required to issue electronic invoices rather than paper VAT invoices.

General taxpayers, meaning entities with annual taxable sales at or above CNY 5m, apply standard rates of 13%, 9% or 6% depending on the nature of the goods or services supplied, and can offset input VAT against output VAT. This mechanism is generally more efficient for businesses with significant supply-chain costs and is worth considering as a company grows toward the threshold.

The VAT system in China carries a compliance burden regardless of taxpayer category. Small-scale taxpayers face simpler calculations but are still required to register, file on schedule, issue compliant invoices and maintain records. The State Taxation Administration has enhanced its data-matching capabilities through the Golden Tax System, meaning discrepancies between sales figures, invoice volumes and bank flows are identified more readily than under the previous regime.

Withholding tax

Foreign enterprises without physical establishment or places of business in China are subject to a 10% withholding tax on gross income from dividends, interest, property leases, royalties and other passive income sourced in China unless reduced under a double tax agreement. When a Chinese business makes payments of this nature to an overseas entity, the China-based client withholds the applicable amount and remits it directly to the Chinese tax authorities.

The China-based client is responsible for ensuring compliance with the withholding tax policies. Failure to do so may lead to penalties, and any repayments are handled between the local tax bureau and China-based client, not the overseas entity.

Stamp duty

Stamp tax applies to all enterprises and individuals engaging in taxable documents or securities trading within China. It also applies to those who make taxable contracts outside China if they are used within China. Stamp tax rates range from 0.005% on loan and finance leasing contracts to 0.1% for property leasing (excluding finance leases) and property insurance contracts.

Other business taxes

• Customs duties: Taxes on imported or exported goods in China, with rates ranging from 0% to 35%, depending on the item’s type, origin and trade agreements in place.
• Consumption tax: Imposed on specific goods like tobacco, alcohol, luxury items and environmentally harmful products, with rates varying based on the item’s nature to discourage excess consumption and promote sustainable habits.
• Real estate tax: Annual tax based on property value or rental income for business use, set at 1.2% of the original building value or 12% of the rental income.
• Land appreciation tax: Levied on profits from land or property sales, with rates progressing from 30% to 60% based on the profit amount.
• Deed tax: Applies to land-use rights or property transfers and ranges from 3% to 5% for purchases, sales, gifts or exchanges, with the transferee/assignee as the taxpayer.
• Resource tax: Imposed on natural resource extraction such as minerals, oil, gas and water, with rates determined by the resource type and quantity.
• Environmental protection tax: Introduced in 2018, this tax targets entities emitting pollutants, with rates based on the pollutant type and amount released into the environment.

Individual income tax

Individual income tax (IIT) is imposed on all individuals, including Chinese and foreign nationals residing in or deriving income from China. It follows a progressive tax system with rates ranging from 3% to 45%.
Residents’ income is combined as comprehensive income annually for tax calculation. Non-residents, however, have their income taxed monthly or per transaction.

Employers are responsible for accurately calculating and withholding individual income tax from employment-related earnings, such as wages, salaries, bonuses, stock options and allowances, before paying a net amount to the employee.

The preferential IIT treatment for annual bonuses, which allows a separate calculation method that reduces the effective rate on one-off year-end bonuses, has been extended through 31 December 2027. This applies to both Chinese nationals and foreign employees receiving performance-linked or discretionary annual bonuses. Foreign employees should also review the IIT deductions available to foreigners working in China.

Taxpayers earning income from business activities calculate their individual income tax annually. They submit tax returns to tax authorities within 15 days after each month or quarter and prepay taxes accordingly.

Non-resident individuals earning income from wages or salaries from multiple sources in China declare and pay tax within the first 15 days of the following month after receiving the income.

Consequences of missing the tax filing and payment deadlines

Failure to complete tax declaration formalities and submit payment information within the specified time may result in penalties. Taxation authorities may require taxpayers to rectify the situation within a set timeframe and could face fines of up to CNY 2,000. In cases of serious offences, fines may range from CNY 2,000 to CNY 10,000.

Furthermore, failure to make tax declarations or adequately pay the tax due can lead to penalties for late payment. The taxpayer may incur fines ranging from not less than 50% to five times the amount of tax unpaid or underpaid, in addition to the required tax payment.

Conclusion

Understanding the different tax types, applicable rates and filing deadlines is crucial for ensuring compliance and optimising tax efficiency. From VAT to corporate income tax, withholding tax and various other levies, foreign investors should be aware of the specific requirements that apply to their operations.

Several key policies, including the SLPE reduced rate and the IIT annual bonus treatment, are confirmed through 2027 but remain time-limited, so businesses should monitor renewal decisions as those dates approach. For cross-border arrangements and related-party transactions in particular, early advice from a qualified tax professional reduces the risk of errors that are increasingly detectable under China’s integrated tax reporting systems.

How Acclime can help with taxation in China

Acclime’s comprehensive suite of corporate tax compliance services ensures that you stay ahead of your tax obligations. Our experienced team collaborates closely with relevant authorities, ensuring timely and accurate completion of your tax filing obligations. Beyond basic compliance, we provide insightful strategies to optimise tax efficiency, minimise liabilities and maximise returns. By entrusting your tax matters to Acclime, you can focus on core business activities while having confidence in our expertise to navigate regulatory intricacies and mitigate potential risks.

In addition, enterprises in tourism, modern services, and high‑tech industries, defined as companies whose main business falls within the projects listed in the Catalogue of Preferential CIT Policies for Tourism, Modern Services, and High‑Tech Industries in the Hainan Free Trade Port, and whose revenue from these main business activities accounts for at least 60% of total corporate income, benefit from a full exemption on CIT for overseas direct investment income newly generated between 1 January 2020 and 31 December 2027.